Overvalued Appraisal

[PushinValue]

From where I stand it looks like you are the one doing the grinding. I came here to get advice from professionals not get abused and told that I acted out of greed. As I have stated before, if an appraisal is only someone's opinion and that opinion is not accountable to anyone, then what is the point of the appraisal? Essentially your industry is getting paid to do something that has wide ranging consequences to lenders and borrowers and your saying ..oops .. sorry but it was only my opinion. Nice business your in.

Pretty much. The underwriter is also on the hook along with the company lending the $$$

 

[PushinValue]

Harm would only be in the overall value of the loan I took based on the appraised value. I did loan more because the appraisal value was 650K and loaning 400K would leave me at least 200K in equity. The extra money went to pay off loans of higher interest on the business which was paying down a 200K SBA loan which in turn, the local bank held a UCC filing on the business property. Quicken knew that and initially told me they would only loan if they could loan against the entire property and in order to do that it was necessary to pay off the SBA loan so the local bank would release its lien. That is why I took the 400K instead of just what was owed on the construction loan.

It is this equity that is now missing from the overall equation so that is the "harm" I suffered.

If you think it is "missing" then the appraiser was correct with the 650k number. I think you have it wrong, the additional 200k was never there...

 

[J Grant]

OP- "They ordered an appraisal and could not find an appraiser to do it. They asked me if I knew anyone and after asking around was given the name of an appraisal service in Plentywood MT, some 100 miles to the east of us. I passed the name on to quicken and they hired them. "

Once again, the above is a violation of lender ordering regulations. If the above really happened the way she said it happened, whether the appraisal was over valued or not, Quicken is supposed to select the appraiser, not ask the borrower for a recommendation and then use the firm or person recommended by a borrower.

 

[hastalavista]

OP- "They ordered an appraisal and could not find an appraiser to do it. They asked me if I knew anyone and after asking around was given the name of an appraisal service in Plentywood MT, some 100 miles to the east of us. I passed the name on to quicken and they hired them. "

Once again, the above is a violation of lender ordering regulations. If the above really happened the way she said it happened, whether the appraisal was over valued or not, Quicken is supposed to select the appraiser, not ask the borrower for a recommendation and then use the firm or person recommended by a borrower.

While you are correct that the lender is responsible for selecting the appraiser, that doesn't mean that the lender cannot take recommendations from the borrower (or anyone else) of which appraisers to use. Quicken did select the appraiser but relied upon the borrower's recommendation.
If I were a lender, I'd be very careful about going down that route; as I already posted, if a lender does take the recommendation, it is the lender's responsibility to vet the appraiser's qualifications and competency. It would be prudent for that lender to review the work with additional diligence.


I get calls from real estate agents asking if I will appraise a purchase-transaction for mortgage financing. These properties (as you can imagine) have some atypical feature and the lender is having difficulty finding an appraiser to take it on. While not the agent is not the borrower, I think we would certainly agree that the agent has a vested interest (self and fiduciary) to move the transaction to closing.
When taking these calls I always tell them I need to speak to the lender as they will be the client. Depending on what the lender's requirements are will determine if I'm inclined to accept the assignment or not.
As you can imagine, fee-sensitivity is not significant. That doesn't mean there is an opportunity to gouge anyone; it certainly means that the assignment has complex components and if they are having difficulty finding an appraiser, they expect to pay an appropriate fee for that assignment. Sometimes my fee is too high and they look elsewhere (which is fine); I'm not the only appraiser that can do a complex assignment in my market so if they find another, qualified appraiser who charges less, more power to them.
One thing they (the agent who calls and the lender with whom I speak to) are very concerned about: Am I competent to do this assignment and have I done similar assignments like this in the past? And, I expect my work to be reviewed with a higher level of diligence because of all the dynamics.
That is where I would assert Quicken failed (whether they did or didn't is the question).

 

[J Grant]

I might agree D...but how would regulators see it. I wonder if a lender taking a recommendation from a borrower to do the appraisal for that very same borrower has a conflict of interest present that would not be in play if a third party recommended an appraiser . The fact that this appraisal firm is located over 100 miles away ...does it matter? If there were commercial aspects should a cert gen have been used ? Did borrower speak to anyone at the firm or hear they had a reputation of being deal friendly/ getting high values? Unknown...but I saw over the years when an appraiser tries to help a person tilting results in a desired value direction, that person will turn on the appraiser if things go south.

A forensic review by a competent neutral bias appraiser can discover if this appraisal was over inflated value back at date/time it was appraised. (imo).

 

[hastalavista]

I might agree D...but how would regulators see it. I wonder if a lender taking a recommendation from a borrower to do the appraisal for that very same borrower has a conflict of interest present that would not be in play if some third neutral party recommended an appraiser . The fact that this appraisal firm is located over 100 miles away ...does it matter?

The distance (IMO) given the market (Montana, right?) doesn't necessarily concern me. Given enough time to do the assignment, you could go 100 miles away and appraise a home and do the sufficient level of market research to understand those dynamics. I would expect you to charge appropriately.

I think the regulators would see it this way:
"We don't have a problem with you taking recommendations for an appraiser from the borrower. We have a big problem if you did not appropriately qualify that appraiser. And, that problem has grown exponentially if you did not appropriately review the appraisal given the complexities involved which required you to rely on the borrower for her/his appraiser recommendation."




BTW, my hypothetical regulatory scenario is consistent with the Federal Reserve Bank (San Francisco) from their Risk, Policy, and Data Analytics Group described as their regulatory perspective. They rarely look at specific appraisals (but do if there is a problem ); they spend a lot of time looking at the structure a regulated institution has in-place to ensure compliance. I have little doubt that the expectation of a regulator in the scenario we are discussing would be to diligently qualify the appraiser and review the appraisal.

 

[Mark K]

Can I sue someone for getting me in over my head or am I just on my own?

"Someone" always gets people in over their heads. Maybe you can sue the absent co-borrower that started the snowball rolling?

Aside from that and after reading this trainwreck of a thread, I only suggest that you follow Denis' advice; ignore the rest of the background noise.

 

[Ken Masla]

My question to the members is about a property I own that appears to have been grossly overvalued.

The property is 5 acres of land with a newly constructed 4000sf home, 1400sf 3 bay garage and a 4000sf heated and insulated commercial shop. The property in the right location would be worth upwards of 2 million but in this case it is in an isolated rural location in NE Montana near the Canadian Border where the above average home sale prices are in the $4000K area. This is surrounded by farmland.

I purchased the property in 2000 for $25,000 and at the time it had a 1400sf basement only house with a roof on it that was only 3ft above grade. I started a business there which was manufacturing items that I sold on the internet. Over the years the property grew and in 2008 I built the steel shop and in 2012 I took a 150K construction loan with a local bank to build the house on top of the existing basement. The bank ordered an appraisal for purposes of the loan which valued the property at 280K AFTER the house was built.

With the house finished in mid 2014 and a cost overrun of 50K, I took the property to Quicken Loans for a 30year conventional loan. They ordered an appraisal and could not find an appraiser to do it. They asked me if I knew anyone and after asking around was given the name of an appraisal service in Plentywood MT, some 100 miles to the east of us. I passed the name on to quicken and they hired them.

The appraised value came in at $650K which was very surprising to me but I said terrific! I would use the opportunity to pay off the existing construction loan and some other outstanding debts so I took on 400K with the thought that I still had 250K of equity.

A year later my common law husband walked out on me causing my business to all but fail and leaving me sitting high and dry in the middle of nowhere with a large debt to pay. I decided to sell the property and had trouble finding a local realtor to take it on at the appraised value. I then found a sympathetic realtor who marketed it for a year locally and over the internet, starting out at $500K and eventually down as low as $350k which was below what I owed. In all this time he had only 2 inquiries and 1 showing. None of those were financially qualified.

In Oct 2016, I walked away and moved to Florida. I continued to pay the Mortgage till January of 2017 but then had to stop due to financial hardship. Quicken offered me a deed in lieu with a 1099 hit for the difference which could have been substantial. I looked at bankruptcy but since my business was still bringing in the majority of my income I would have had to lose that in bankruptcy. So, in June 2017 I made a deal to do a mortgage modification and move back to the property.

Last week I paid for a reappraisal from the same appraiser that did the appraisal for the bank in 2011 and she said to me that based on the location, she does not understand where his number came in at $650K. She didn't think it will come in at 450K. Still waiting for the result. The Tax assessed value is $385K.

So... what now? Can I sue someone for getting me in over my head or am I just on my own? I appreciate any advice I can get. Thanks for your time.

I think the lawsuit is going to be the lender suing the appraiser. You were never the client on the appraisal.

You can sue the appraiser for the new appraisal you are ordering. She is probably going to mess up again so you might have a chance for vindication.

In your case, market value is what the market will pay for. So the offers coming in is reflecting your market value. If an appraiser comes in at 700K, people don't magically start offering 700K for the property.

I don't know how much your legal fees might be, but it seems like you are in a better place right now. Things can be a lot worse.

 

[jtinmichigan]

Just some 2 cents here, but if you have been actively marketing the property at $299k and have no offers, how would you expect the new (old) appraiser to bring this in anywhere close to $400k or $450k. If it doesn't sell on the open market at $299k after an extended period, it is likely overpriced for your current local market.
I don't know how an appraiser could ignore the fact that this property has had that kind of market history and not take that into account. It is likely its own best comp, based on its market history with no offers.

 

[snowchild]

Update

I have discussed this situation with a real estate Lawyer as was advised here. After looking deeper into this it appears as though the loan would not by normal standards have met the debt to income ratio of myself and the other owner, even jointly. The loan was for 400K and our income at that time was only 47K yr gross each which means that we would have each had a 75% Debt to Income ratio which is far beyond the normal limit allowed on a residential loan. Even together, it would have only just cleared the DTI requirement of max 40%. In fact, once the loan was closed we were each assessed the full value of the monthly note which was reported to the credit bureaus and took our DTI to over 120% each

After going through all the documents supplied to quicken during the application period we find no evidence of us submitting personal tax returns or income statements but we did find that Quicken had requested and been sent business tax returns and bank statements for several years. The business is a corporation not a partnership. What was also sent was the paperwork on the SBA loan for the business that a local bank was leaning a portion of the property on with a UCC filing. When the loan was funded the SBA loan was paid off by quicken loans.

The attorney is highly suspicious of the transaction and is now asking a lot of questions on both the loan itself which is FNM financed, HUD approved and residential. She is also looking at the appraisal(s) and in particular the one ordered by quicken that values the property 250K over the other appraisals. It is possible that the loan was approved based on the income of the business as a whole.